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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Get the most out of property investment and secure your financial future
7 Steps to Wealth is the only real estate book in Australia endorsed by three of Australia's property billionaires. It shares John L. Fitzgerald's own 35-year proven property strategy, supported statistically and with real life case studies from readers of earlier editions. Now in its 8th edition the book is completely up-to-date with the latest census data, location criteria and growth forecasts.
Most importantly the book exposes the difference between property and real estate, proving that it’s only the land that appreciates and that the buildings that sit on the land actually depreciate. Indeed 7 Steps to Wealth uses Warren Buffet’s secret of compound growth but adapted for Australian property investors. Fitzgerald proves that certain residential land is Australia's best growth asset –– and will continue to be given current record population growth.
• Unlock the secret power of compound growth and make it work for you
• Avoid the common mistakes that most property investors make
• Read case studies and testimonials from millionaires using the 7 step strategies
• Understand how to safely build wealth in property, be cashflow positive and still get a tax deduction.
With Australia's record population growth, there is no better time for Australians to use this proven strategy to safely build wealth for a comfortable retirement, one that doesn’t mean relying on government welfare.
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Veröffentlichungsjahr: 2018
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7 STEPS TO WEALTH
8TH EDITION
THE VITAL DIFFERENCE BETWEEN PROPERTY & REAL ESTATE
“John presents an honest, time-tested strategy to wealth accumulation that every Australian should know about.”
— Michael Baragwanath, Financial Planner
“I followed 7 Steps since 1998. My wife and I acquired 6 properties, sold 3 to fund our family home and now we’ve purchased our 4th investment property.”
— Jason McCartney, Former AFL Player
“I started 7 Steps in my 50s. 20 years on, I sold just 1 of my 10 properties and made a $280 000 profit from a $47 000 deposit! Thanks to 7 Steps my retirement is secured.”
— Margaret Seedsman, Former Mayor
“7 Steps works. We weren’t property people when we got started, but we learned how to build a portfolio for our retirement.”
— David and Dada Bailey, Engineer, Retired
“When I first read 7 Steps I didn’t believe I could acquire multiple properties. I now have 13 properties and regret I didn’t start sooner.”
— Craig Chu, Banker
“7 Steps gives us a choice when to retire as opposed to 65 or 67 years of age.”
— Margaret Wachnik, Business Owner
“To me, attitude is everything in life. 7 Steps gave me the right tools and attitude to help secure our future.”
— Wayne Dyson, Corporate Coach
“As a leadership coach, I help people bridge the gap from where they are to where they want to be. Thanks to 7 Steps, I’ve learnt how to do that for my own retirement.”
— Toni Courtney, Leadership Coach
“An insightful book delving into some investment property principles which all property investors should be aware of. The book offers some powerful insights into John’s personal story and is a fantastic read for everyone embarking on their own property wealth accumulation journey.”
— David Shaw, Accountant
First published in 2018 by John Wiley & Sons Australia, Ltd
42 McDougall St, Milton Qld 4064
Office also in Melbourne
Typeset in 11/14 Sabon LT Std
© John Wiley & Sons Australia, Ltd 2018
The moral rights of the author have been asserted
All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.
Cover design: Wiley/JLF
Cover image: ©vladars/Getty Images
Author photo: Moonboy Entertainment
House icon: ©Azaze11o/Getty Images
Printed in Singapore by C.O.S. Printers Pte Ltd
10 9 8 7 6 5 4 3 2 1
Disclaimer
The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.
Contents
Cover Page
Title Page
Copyright page
Acknowledgements
Preface
Foreword
Introduction: A fool and his money are easily parted
So who’s the expert?
So that’s what this book is all about
Who is John L. Fitzgerald?
Booms and busts, and bad decisions
Part I: Starting points
Chapter 1: Why build wealth?
Why aren’t more Australians wealthy?
What’s the solution?
Chapter 2: Why residential real estate?
✓
Security
✓
Performance
✓
Leveraging
What about shares?
What about commercial property?
Meanwhile, the future for housing …
Aren’t we already investing in residential real estate?
Choosing a home
Choosing an investment property … not!
Choosing a property for capital growth
Chapter 3: A structure for growth
Okay, so back to wealth-building!
How it all works: an overview
The starting point
The beauty of compound growth
How much can you achieve?
What does it take to make the structure work?
Part II: The 7 steps to wealth
Step 1: Buy land for capital growth
What about units?
Does location matter?
Where should you buy for capital growth?
The benchmark factor
What about regional areas?
Step 2: Optimise your income
Who rents and why?
Optimising your rental income
Rental? But that means tenants!
✓
Set rents just below the market rate
✓
Check out prospective tenants the way you would a prospective employee
✓
Cover the cost of the unexpected
✓
Get someone else to take on the management tasks — and hassles — for you
Step 3: Maximise your tax benefits
What is negative gearing?
What deductions can you claim?
The difference that makes a difference: depreciation
Who wants to pay more tax than they have to?
Need any further incentives?
Positive thinking for negative gearing
The money pit
Step 4: Finance to build wealth
Assessing the value of property
Bank valuations
Valuers
Choosing a loan provider
Using a broker
Choosing a finance option
Gearing in action
Step 5: Aim for affordability
Ups and downs
Who controls the price of property?
Making property affordable for you
The upside of the bottom end
Step 6: Make time work for you
Time works — when you do!
How do you make time work for you?
Knowing your options
The global financial crisis (GFC)
The confidence factor
Step 7: Be all you can be
Wealth: the big picture
Toogoolawa
Sowing the seed
Jason McCartney’s story
Appendix A: Tenancy application form
Appendix B: Questions and answers
List of Table
Chapter 2
Table 2.1:
house price growth
Step 1
Table S1.1:
examples of land tax by capital city median house price
Table S1.2:
land tax thresholds by state
Step 2
Table S2.1:
capital city rental affordability
Step 3
Table S3.2:
buying new vs buying old
List of Figure
Chapter 1
Figure 1.1:
total savings and assets that Australians retire on
Chapter 2
Figure 2.1:
sources of wealth
Figure 2.2:
residential returns — Sydney metropolitan area
Figure 2.3:
investment returns 1926–2016
Chapter 3
Figure 3.1:
portfolio structure
Figure 3.2:
100% return p/a on capital
Figure 3.3:
ability to duplicate
Figure 3.4:
value and debt
Figure 3.5:
financial goals — six properties over 10 years
Figure 3.6:
financial goals — 10 properties over 10 years
Step 1
Figure S1.1:
Growth in land-only value versus house-and-land value in Shailer Park 1986–2018
Figure S1.2:
land content of residential property
Figure S1.3:
capital growth in the main capital cities, 1997–2017
Figure S1.4:
annual population growth by capital city, 2006–16
Figure S1.5:
population growth forecast to 2050 by capital city
Step 2
Figure S2.1:
the demand for rental property
Figure S2.2:
household size
Figure S2.3:
residential vacancy rates
Step 3
Figure S3.1:
who pays the outlays?
Step 5
Figure S5.1:
affordability based on income – average property prices showing monthly mortgage repayments as a % of average gross household income
Figure S5.2:
the affordable housing market
Step 6
Figure S6.1:
financial goals — three homes over 10 years
Figure S6.2:
financial goals — six homes over 10 years
Who is John L. Fitzgerald?
Figure F1:
Purpose, truth, integrity’ triangle
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To my beautiful, amazing family; Maggie, Prema, Alex and Kane; and Ron and Suwanti Farmer; and our family of teachers and social workers at Toogoolawa Schools. We are all teachers. Some teachers explain. Some teachers complain. Some teachers inspire.
ACKNOWLEDGEMENTS
I first want to thank three Australian property billionaires, who are friends and colleagues I’ve known for a very long time, for providing their endorsement and taking the time to pick apart this thesis. It’s rare for any Australian billionaire to endorse anyone as they are often very private people, but Bob, Nev and Maha all recognised the dire problem we face with growing welfare and inertia concerning how baby boomers are retiring.
Also thanks to my beautiful daughter, Alexandra, for painstakingly assisting with updating research and recommendations in this eighth edition. In the same vein, thanks to Nathan ‘BG’ Bowtell (Baby Giraffe), and Darren Marinovich and Brittani Pickering for all your help with logistics and data. Also, a huge thank you to Claire Louise Wright, wherever you are in this amazing world: thanks for all the foundations in earlier editions of 7 Steps to Wealth, which remain as building blocks today.
Finally, to the many thousands — or now tens of thousands — of 7 Steps practitioners who have followed me for more than 20 years and stand as testimony of this book as the best way to safely build wealth, reduce tax and ensure they retire comfortably without relying on the government: congratulations to you.
Albert Einstein said there are two ways to live your life: one is as though nothing is a miracle. The other is as though everything is a miracle. I believe in miracles and I give thanks and eternal gratitude.
Land is the foundation of all wealth.
PREFACE
This is not just a book about how to build wealth by investing in real estate. It’s a book about how you can build wealth by investing in real estate.
There’s a big difference. The words ‘property investment’ probably conjure up visions of serious guys in serious suits talking about things like ‘negative gearing’, ‘leverage’ and ‘equity positions’. And for most people, that’s a major turnoff. Perhaps that’s why property investment is one of the best-kept secrets of the financial world.
I’m going to let you in on a few well-kept secrets in this book — and I’m going to try and do it in easy-speak language so that anyone can pick it up and read it. I figure, if Stephen Hawking can write a popular book based on Einstein’s theory of relativity, then somebody ought to be able to do the same for real estate investment! I’d like to give you something you can relate to and, more importantly, use without constantly tripping over a load of jargon and statistics.
The books on wealth creation that are full of jargon and statistics (and there are a few of them about) are often written by academics who may have gathered a wealth of theoretical knowledge, but haven’t actually — personally — created any wealth. I’d have to say, I’m pretty much the opposite.
However, Einstein himself said, ‘Everything should be made as simple as possible, but not any simpler’. Good rule. So you will find numbers, charts and technical terms in this book, but they are there to clarify key concepts — not to prove that I can use statistics and big words. We’ll also cover a fair bit of information, but this isn’t one of those ‘everything you never particularly wanted to know about economics’ books. I’m simply going to tell you about the most effective way I know to build wealth.
By the time you finish reading this book, you will have a pretty clear idea of how to maximise your assets, reduce your tax bill, ask the right questions and see through some of the so-called experts in the field. And, perhaps most importantly, you’ll know that you can build wealth.
The principles set out in this book aren’t new. I’ve been using them for myself, and for clients, for many years — and they work. They’ve given us financial freedom, security and a great lifestyle for ourselves and our families. And that’s just one part of what building wealth is about. For me, it’s also about the potential to make a difference in the world: an opportunity to be all I can be. I think of it as a journey to discover purpose. Welcome to the adventure.
FOREWORD
As I write this foreword in early 2018 Australia is experiencing its highest sustained population growth and lowest interest rates in history. If ever there was a time for you to invest in property it is now, so if you’ve picked up this book really looking to learn how to safely and profitably invest in property, good timing.
If you’ve already read one of the seven earlier editions of this book and picked it up again I would also encourage you to read this version. You will notice new case studies of actual property investors, updated census data and fine-tuning of location criteria due to accelerated migration, foreign students and growth in healthcare as baby boomers retire. All these factors directly affect how we invest in real estate.
The 2016 census polarised a few important numbers for those of us who study property trends: Australia’s population growth is at a record number, averaging 367 900 per annum over the past 10 years. We struggle to build 180 000 houses a year; 25 per cent of all homes are occupied by one person; and the average household population is fairly stable at 2.6, with 72.9 per cent of Australians living in a detached house. It’s a fallacy that we are all living in apartments in the city. But what is polarising is that the main four capitals are attracting 78 per cent of the population growth and 87 per cent of the job growth.
The next big revolution will be AV (automated vehicles), which will completely change how we live. I make a point of studying this each year with the Urban Land Institute and have been considering the ramifications within my location criteria.
We are halfway through a property cycle. Different markets cycle at different times. After the first edition of this book, I started a group called Custodian, which acts like a buyers co-operative. We bought 416 properties for our clients in Sydney between 2011 and 2015 with an average price of $484 432, being house and land within 30 to 50 kilometres of Sydney’s CBD and — most importantly, as you will glean from this book — we paid an average of $598 per square metre, and today the land is worth an average of $1313 per square metre. Our clients have made well over $100 million in five years. In the same time, the median house price has risen 85 per cent and apartments 73 per cent.
What’s the most important advice I could give you? Well it’s age old and comes from Confucius himself: ‘Happiness comes from acquiring knowledge and putting it into practice’.
This book will give you all the knowledge you need. It’s up to you to put it into practice. If you do, you will enter the realm of less than 1 per cent of all Australians. That’s right: while 8 per cent of all Australians invest in property, less than 1 per cent do it properly, as you will learn in this book.
John L. FitzgeraldMelbourne, January 2018
INTRODUCTION:A FOOL AND HIS MONEY ARE EASILY PARTED
There are really only two reasons why you would lose money in real estate:
greed
not doing your homework.
Unfortunately, those two things catch out about 95 per cent of ‘punters’.
Greedy investors are usually locked into ‘get rich quick’ thinking — and they shoot themselves in the foot in all sorts of ways: making false economies, pricing themselves out of the market and selling short of real growth (50 per cent of property investors sell in the first five years). As an investor, unfortunately, you also need to avoid being manipulated by the greed of others — and there’s a fair bit of it about in the real estate industry. That’s why doing your homework is so important.
The real estate industry is huge: the residential sector alone turns over nearly $301.3 billion per year. That’s a lot of property. And it’s often bought and sold less on sound research and decision making than on sentiment, impulse, gut feeling and, of course, ‘expert opinion’. (Multibillion-dollar industries seem to attract ‘expert opinions’ in about equal quantities.)
I forever have people walk into my office saying they’ve bought the property that is going to make them a lot of money, or that they represent a vendor or particular property that I’ve just got to acquire if I want to make money. Over the years, I have learned not to get too excited: probably one in 100 of these people has any idea at all what they are talking about.
It’s a bit like McDonald’s restaurants: everyone thinks they can set up a duplicate fast food chain because McDonald’s make it look like such a simple business. It isn’t — and thousands have failed in the attempt.
I’m reminded of this every year, on my pilgrimage to the AFL Grand Final. Everybody has a strong opinion about the game before, during and after it’s played! Our opinions don’t always coincide, and frankly, aren’t always based on sober fact or objective analysis. That’s our right to free speech! Sitting among the spectators, you could well believe that the person next to you would make a far better umpire than the umpire — and certainly a better coach than the guys in the box. The fact is, however, that umpires and coaches have paid their dues in the little league, or with other football clubs, and then graduated through the majors: they are appointed on their track record, and judged on their track record, game by game, as their career goes on.
The real estate industry has all the opinions — and not too many of the track records to support them. There are literally thousands of people giving advice about what to buy or sell, and quite a lot of them simply haven’t got a clue! Others, of course, have their own good reasons for giving bad advice. And if you take that advice, you are probably a fool — and guess what will happen to you and your money?
There are literally thousands of people giving advice about what to buy or sell, and quite a lot of them simply haven’t got a clue!
It sometimes seems like there’s a ‘veil of mystery’ (or perhaps it’s just confusion) over property investment. If you’re going to make good decisions that will build you wealth, you need to look behind two veils:
Why are you buying a property?
Who is selling or advising you to buy it and why?
There are really only three reasons to buy a property:
for your
own
use — that is, to live or work in
for
income
— that is, to supplement your income in the short-term, through charging rent and taking advantage of legitimate tax deductions
for
capital growth
. That’s what builds wealth. Add the dynamic of
compound growth
where you start with one property and use its capital growth as a springboard for acquiring more properties and you have solid potential for
serious
wealth.
I travel all around Australia talking to people about building wealth in real estate. A lot of them have already acquired some sort of investment property, and when I ask, they are quick to say: yes, indeed, of course they’re after capital growth. But a few more questions usually reveal that they never in fact considered the capital growth potential of the particular property that they acquired.
They ‘knew’ that property goes up in value, but didn’t realise that could mean anything from 20 per cent to 2 per cent per annum: in other words, the difference between positive and negative growth in real terms (in excess of inflation). They based their choice of property not on capital growth potential but on all sorts of other factors: they liked the idea of rental income (perhaps guaranteed by the vendor) or tax deductions; they ‘liked’ the property; it was recommended by someone they trusted; it promised low maintenance costs; it looked like a ‘bargain’; or the finance offered to them on the property made it amazingly hassle-free.
None of these things make for capital growth. If you’re looking to build wealth, look past them!
Do you want to know what the single most important factor for capital growth is? Land. Land appreciates in value; buildings don’t. However much you fall in love with a building, however low-maintenance it is, however much rent you can charge and however many deductions you can claim, the building will depreciate in value over time.
Do you want to know what the single most important factor for capital growth is? Land.
This is why so many investors get their fingers burned when they purchase new units or townhouses. The land content of their investment may be only 10 per cent of the purchase price, 90 per cent of which is therefore a depreciating asset. This is the best-kept secret of the real estate industry because no developer is going to tell youabout it when they can sell 20 units instead of a single house or duplex on the same block of land.
That’s why you need to look behind the second veil: who are the people selling you the property and what are they getting out of it?
The real estate industry itself ought to do some housekeeping, but it comes down to the old Latin principle of caveat emptor: buyer beware! Ask yourself a few awkward questions about the competence and track record of anyone selling or recommending a property and about their vested interests: what are they getting out of it?
You wouldn’t believe, for example, how much heartache and loss of capital could be avoided by asking two simple questions:
Ask the agent to disclose the commission and marketing fees that the vendor is paying. Commission used to be regulated, but is now open slather in most states. It’s a useful reminder that, no matter how cooperative they appear, agents work for the vendor (and themselves) — not for you, the investing buyer. Their interests — and those of their clients — are served by securing the highest possible price for a property: yours, naturally, are not.
Ask to see a copy of the bank’s valuation of the property for security purposes. It is not always the same as the purchase price.
You can’t afford to be too trusting of the people you deal with. And that includes banks! Banks often lend on an investment property, knowing that the purchase price is way over their valuation of the property: they draw on your equity to make up the difference in the security, crippling your potential to build wealth (not that they disclose this to you!). Some banks do have a policy of disclosing. This should be mandatory. It isn’t. Some investors don’t find out until a year or two later that they have an unexpected deficit in the calculation of their net worth. I can assure you, banks would do things rather differently if their right to recovery were limited to their valuation of the property!
You can’t afford to be too trusting of the people you deal with. And that includes banks!
Asking probing questions may be uncomfortable, but it’s not nearly as uncomfortable as finding out that the equity you’ve built in your home over the past five to 10 years has been wiped out because you didn’t ask the right questions.
You need to listen carefully to the answers, too. Many of them may well come into the category of lies, damn lies and statistics! For example, one of the tricks of the property trade is for marketers to justify sale prices and their claims of growth by quoting newspaper clippings and comparable investment sales. Companies have been selling units for years by claiming that there has been a 20 to 50 per cent growth in the value of similar properties — based on what other investors had paid six, 12 or 18 months before. But this is not a true reflection of the market. Investors aren’t the true consumers of property — and what’s to say that those previous investors weren’t also talked into paying an over-inflated price?
Previous investment sales are often a barometer not of local market conditions, but of the effectiveness of a slick sales operation. My own home ground, the Gold Coast, has probably got the ‘best’ operators in this style: they sell literally thousands of properties each year to would-be investors at 10 to 30 per cent more than the market value using comparable investment sales to justify their prices.
And this is another reason to steer clear of units for investment: 60 to 100 per cent of all units built are sold to investors, not owner-occupiers. Which makes them a lousy barometer of market prices.
We’ll discuss all these issues in detail later in the book.
So who’s the expert?
I’m asking you to look behind the veil of anyone who has an opinion about investment property. So what are my qualifications?
Academically, none. But in 1985, when I was 22 years old, I started building a property portfolio that would have allowed me to retire very comfortably by the time I was 30. That in itself wouldn’t make my advice better than the next guy’s, but over the intervening period I have bought, sold or developed more than 15 000 properties, and I still develop more than 500 properties per annum. I have been doing this for more than 35 years and have a land bank of more than 14 million square metres.
I have learned by experience how to create wealth consistently — and how to use it sensibly. And I have successfully helped others to do the same.
